Small Cap Companies – Big Returns
The Momentum Letter’s goal is bringing attention to great small cap companies and ideas related to the small cap markets.
This is why you should care about small cap market investments
If you are going to put your capital at risk, you want to have as much of an edge against the market as possible. The best way to do this is to own great companies before they’re big enough to be cared about by institutional investors or covered by analysts. Larger companies tend to be priced closer to intrinsic value by the market precisely because so much more attention is paid to them. A small or micro cap stock has a fraction of the attention and when it does hit that threshold that makes it attractive to larger investors, it requires significantly less capital inflow to make it a 5, 10 or even 20-bagger. If we think a company can execute and attract institutional money in the future, this is our best chance to achieve those types of returns.
Are you a small cap market investor?
Another great aspect of smaller companies is how accessible they are. We try to get to know management as much as feasible. We routinely talk to management directly, visit them face-to-face, and do our best to talk and interview with as many key employees and shareholders as we can. This level of access is a huge advantage if you’re willing to do the work. Once a company reaches a certain size, good luck trying to call up the CEO or their key shareholders. More often than not the founders and early management are gone by this stage and the current executive teams are compensated with salary, not equity appreciation. We are looking for great management with aligned incentives with shareholders.
You’ve read it before: there are tons of small cap companies that are outright frauds, others are speculative at best and even the best are extremely volatile. Many brokerage firms won’t even allow clients to buy smaller companies because they are trading under a certain price or on a smaller exchange. But, this is the opportunity – all of these factors combined can lead to spectacular upside if you’re willing to do the work. This is why we created TML: to highlight companies that have the right mix of all the factors above to give us outsized returns.
Join us as we search for the next small companies to make it big.
